Google’s Rosetta Stone AdWords Woes Continue as Case Reopened

Rosetta Stone’s trademark infringement lawsuit against Google, first filed in 2009 and dismissed by a Virginia court in August 2010, has been revived by a federal appeals court. At issue: whether the sale of trademarked search keywords to the company’s competitors for sponsored links makes Google liable for trademark infringement.

Language software company Rosetta Stone complained that users searching for their software were being misled and confused by competitor and counterfeiter sponsored links, from which Google directly profited. Five consumers gave testimony that they had been directed to counterfeit software after searching for Rosetta Stone products as a result of Google’s AdWords practice of allowing competitors to bid on and win placement for terms trademarked by others.

In the 2010 ruling, the court ruled that consumers were not likely to be confused. However, Chief Judge William Traxler wrote for the three-judge appeals court panel, “A reasonable trier of fact could find that Google intended to cause confusion in that it acted with the knowledge that confusion was very likely to result from its use of the marks.”

Google’s current AdWords policy prohibits intellectual property rights infringement by advertisers, though they note that trademarks are territorial and apply only to certain goods or services. They also prohibit the promotion of counterfeit goods through their AdWords program, though this is defined within their policy as having “a trademark or logo that is identical to or substantially indistinguishable from the trademark of another.”

The gray area occurs where a competitor product is similar, but doesn’t directly mimic a company’s logo or name. As Google’s policy states, they are “not a third-party arbiter,” and “encourage trademark owners to resolve their disputes directly with the advertisers.” That bit of a disclaimer may not be enough to protect Google from liability, given that they do indeed profit from the sale of trademarked terms.

The appeals court ruling will be one to watch. In March 2011, a United States court for the Ninth Circuit (California) ruled in the case of Network Automation, Inc. v. Advanced Systems Concepts, Inc., that buying ads based on a competitor’s name doesn’t violate trademark law. This case differs slightly in that Rosetta Stone is taking the ad provider, Google, to task, rather than their competitors.

Recently, we’ve seen Google lose an AdWords case on appeal in Australia, where the judge ruled that Google had “engaged in misleading and deceptive conduct in four cases.” In one example in that suit, filed by the Australian Competition and Consumer Commission, users were led to believe by virtue of the ad title that they would be taken to the Honda.com.au website, when in fact the ad was for another website called CarSales.

Under Australian law, the court could not levy a monetary fine against Google, though they ordered that the search giant pay the plaintiff’s court costs. Again, the scope of that case is slightly different; at issue there was the actual language used in the ad copy and headline.

Even if Google loses this case on appeal, history shows they aren’t likely to roll over and change their global AdWords policies. Any additional oversight and policing of the system could put a serious dent in their profitability. A successful lawsuit in one country doesn’t necessarily mean global AdWords policy would change, either.

On Google’s October 2010 settlement of their AdWords dispute with French authorities over their practice of blocking specific advertisers from buying sponsored links, the New York Times had reported that Google “also agreed to apply ‘the principle of improvements and clarifications made in implementing these commitments’ in every country in which it operates AdWords.”

Not so, said Google at the time. Though the search giant was found to have abused its dominant position on the French paid search market and were ordered to clarify rules and processes for advertisers, they made clear the new policies would only apply in France.

“This agreement and the commitments we have made are very narrow,” a Google spokesperson said at the time. “They deal only with ads for traffic devices in France. Nothing else. That said, we are always looking for ways to improve our AdWords services for the benefit of users and advertisers.”

It seems clear that Google will continue to face legal issues so long as they profit from the sale and distribution of ads that target terms trademarked by others or otherwise attempt to steal traffic away from competitors through AdWords targeting. Paid search advertising is big business and Google, with the lion’s share of the market, is the most lucrative target for those financially losing out to questionable competitor practices.

This is the second lawsuit that has been revived against Google within the past week. The $1 billion Viacom-YouTube copyright case was reopened by an appeals court.

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